Question
I have just been talking to the pension service about my wife's state pension prospects. She is one of those who now (just) falls into the new flat rate zone starting in 2016. As she is four years short of the current required NI contributions, she would have got 26/30ths of the basic pension, representing a shortfall of £380/year. Now, she should get 26/35ths of the new flat rate, representing a shortfall of nearly £1500/year. As you can imagine, we're not happy about that, even if it is slightly more than she might have got, if inflation rises meanwhile are taken into account.
However, the pension service will not suggest we buy nine years (some yet to come) of voluntary contributions, as the legislation has not yet been passed by parliament. I am considering buying four years of past NI and waiting for the legal position to be clear before committing to any extra.
Do you have an opinion on when that might happen please?Answer
The Government's flat state pension proposals assume a £144 state pension for 35 years of service versus a current £107 basic state pension for 30 years of service (note: the £107/£144 are based on the last tax year). Ignoring inflation up to 2016 and assuming your wife has not contracted out or will receive any SERPS/S2P benefits, then she should be around £13 per week better off under the new scheme if it sees the light of day.
The rules for plugging gaps in National Insurance Contribution (NIC) records allow you to make voluntary NICs for any given tax year with a shortfall within six years of the end of that tax year.
It is proposed to extend this for those who reach state pension age on or after 6 April 2016, giving them until 5 April 2023 to make voluntary contributions for the tax years 2006/07 to 2015/16. These contributions will be at the 2012/13 rate of £13.25 per week for contributions based on the 2006/07 to 2010/11 tax years if paid by April 2019.
The flat state pension proposals (called the Pensions Bill) is currently going through Parliament and due to see the light of day (i.e. gain 'royal assent') during Spring 2014, you can track progress here.
Given your wife will very likely benefit from making voluntary contributions I would seriously consider making them assuming she has NIC gaps over the last 6 years. If she makes contributions for a previous year it will normally be at the rate which applied that year, unless more than two years ago in which case current rates usually apply.
Since she'll seemingly have until her retirement date to make up any shortfalls over the last six years (at the 2012/13 rate) there is arguably no need to rush the decision - assuming of course the proposals all go ahead in their current form. A minor issue with waiting is that any contribution intended for the 2011/12 tax year would be at £13.25 per week and not £12.60 if you wait (since it would fall outside the two year rule mentioned above).
I have just been talking to the pension service about my wife's state pension prospects. She is one of those who now (just) falls into the new flat rate zone starting in 2016. As she is four years short of the current required NI contributions, she would have got 26/30ths of the basic pension, representing a shortfall of £380/year. Now, she should get 26/35ths of the new flat rate, representing a shortfall of nearly £1500/year. As you can imagine, we're not happy about that, even if it is slightly more than she might have got, if inflation rises meanwhile are taken into account.
However, the pension service will not suggest we buy nine years (some yet to come) of voluntary contributions, as the legislation has not yet been passed by parliament. I am considering buying four years of past NI and waiting for the legal position to be clear before committing to any extra.
Do you have an opinion on when that might happen please?Answer
The Government's flat state pension proposals assume a £144 state pension for 35 years of service versus a current £107 basic state pension for 30 years of service (note: the £107/£144 are based on the last tax year). Ignoring inflation up to 2016 and assuming your wife has not contracted out or will receive any SERPS/S2P benefits, then she should be around £13 per week better off under the new scheme if it sees the light of day.
The rules for plugging gaps in National Insurance Contribution (NIC) records allow you to make voluntary NICs for any given tax year with a shortfall within six years of the end of that tax year.
It is proposed to extend this for those who reach state pension age on or after 6 April 2016, giving them until 5 April 2023 to make voluntary contributions for the tax years 2006/07 to 2015/16. These contributions will be at the 2012/13 rate of £13.25 per week for contributions based on the 2006/07 to 2010/11 tax years if paid by April 2019.
The flat state pension proposals (called the Pensions Bill) is currently going through Parliament and due to see the light of day (i.e. gain 'royal assent') during Spring 2014, you can track progress here.
Given your wife will very likely benefit from making voluntary contributions I would seriously consider making them assuming she has NIC gaps over the last 6 years. If she makes contributions for a previous year it will normally be at the rate which applied that year, unless more than two years ago in which case current rates usually apply.
Since she'll seemingly have until her retirement date to make up any shortfalls over the last six years (at the 2012/13 rate) there is arguably no need to rush the decision - assuming of course the proposals all go ahead in their current form. A minor issue with waiting is that any contribution intended for the 2011/12 tax year would be at £13.25 per week and not £12.60 if you wait (since it would fall outside the two year rule mentioned above).
Read this Q and A at http://www.candidmoney.com/askjustin/872/buy-extra-pension-years-to-boost-flat-state-pension
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